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Wednesday, February 8, 2012

Signs build that Iran sanctions disrupt food imports

by admin on February 8, 2012

Signs build that Iran sanctions disrupt food imports
EDITORS’ NOTE: Reuters and other foreign media are subject to Iranian
restrictions on their ability to film or take pictures in Tehran.
Credit: Reuters/Morteza Nikoubazl
By Niluksi Koswanage and Parisa HafeziKUALA LUMPUR/TEHRAN |Wed Feb 8, 2012 1:28pm EST
(Reuters) – More evidence emerged of the crippling impact
of new sanctions on Iran, with international traders saying Tehran is
having trouble buying rice, cooking oil and other staples to feed its 74
million people weeks before an election.

New U.S. financial sanctions imposed since the beginning of this
year to punish Tehran over its nuclear program are playing havoc with
Iran’s ability to buy imports and receive payment for its oil exports,
commodities traders said.

Iran denies that sanctions are causing serious harm to its
economy, but Reuters investigations in recent days with commodities
traders around the globe show serious disruptions to its imports. That
is having a real impact on the streets of Iran, where prices for basic
foodstuffs are soaring.

South Korean President Lee Myung-bak was in Saudi Arabia on
Tuesday, the latest leader of a major Asian oil importing country to
visit the Middle East seeking alternative sources of oil as sanctions
make it more difficult to import from Iran.

Danish shipping and oil company A.P. Moller-Maersk on Wednesday
said it had suspended the transport of new Iranian oil-related cargoes
and oil tanker deals due to European Union sanctions.

Traders in Asia told Reuters on Tuesday that Malaysian exporters
of palm oil – the source of half of Iran’s consumption of a food staple
used to make margarine and confectionary – had halted sales to Iran
because they could not get paid.

That followed news on Monday that Iran had defaulted on payments
for rice from top supplier India, and news last week that Ukrainian
shipments of maize had been cut nearly in half.

Rice is one of the main staples of the Iranian diet. With the
rial currency plummeting, prices have more than doubled to $5 a kilo at
bazaars in Iran from about $2 last year.

Maize is used primarily as animal feed, and the cost of meat has
almost tripled to about $30 a kilo, beyond the budget of many middle
class Iranian families.

The measures have had a dramatic impact on daily life in the
country ahead of a March 2 parliamentary election that will pit
supporters of hardline President Mahmoud Ahmadinejad against opponents
seen as even more conservative.

Reformists are barely represented in the election, which is being
seen as a referendum on Ahmadinejad’s economic policies that have seen
subsidies for basic goods cut and replaced with direct payments to
families.

Next month’s election will be Iran’s first since a presidential
vote in 2009, when a disputed victory for Ahmadinejad triggered eight
months of violent protests. The authorities put that revolt down by
force, but since then the Arab Spring has shown the vulnerability of
governments in the region to popular anger fuelled by economic hardship.

PALM OIL “HALTED”
The sanctions have not shut the door on all international trade.
U.S. agribusiness giant Cargill said on Tuesday it planned to
continue grain shipments to Iran, although its vice chairman Paul Conway
said it was being “very careful” about how it financed its business
there.
The company was still managing to find banks offering letters of
credit, paid in currencies other than the dollar, Conway told Reuters.

But traders in Malaysia’s capital Kuala Lumpur said palm oil
shipments to Iran had largely been halted since late last year, after
U.S. and European sanctions made it difficult for buyers to obtain
letters of credit and make payments via middlemen in the United Arab
Emirates.

“They keep asking in the spirit of Muslim brotherhood. The last I
heard was an enquiry for 5,000 tonnes for February or March delivery,
but no one wants to take that risk now,” said one trader in Kuala
Lumpur, speaking on condition of anonymity while discussing commercial
contracts.

A margarine factory owner in Iran, who asked not to be
identified, said there was a shortage in supply of the oils needed to
make margarine that could halt production soon.

“The way things are going, I predict that over next three to four
months our edible oil will run out because of sanctions. It is no
longer being imported and Iran itself cannot produce that much.”

A Tehran market wholesaler said: “There is a big shortage of
margarine in the market, due to drop in imports. What is being sold now
is our previous stockpiles.”

A default by Iranian buyers on purchases of 200,000 tonnes of
Indian rice is potentially more crippling. The average Iranian eats 40
kilos of rice a year, 45 percent of which is imported, according to the
U.S. Department of Agriculture. India is the main supplier.

The president of the All India Rice Exporters’ Association said
it was advising exporters to stop selling rice to Iran with the
customary 90 days credit for payment.

“As part of our efforts to minimize losses, we are asking our colleagues to avoid sending rice on credit,” Vijay Setia said.

Exporters have also had difficulty in Pakistan, another of Iran’s major sources of rice.
Javed Agha, head of the Rice Exporters Association of Pakistan
said: “We use lines of credit opened through agents in Dubai, but that
too has become difficult because of sanctions and the resulting currency
fluctuations.”

Iranian buyers normally pay for Indian rice through middlemen in
the UAE, but falls in Iran’s rial means buyers have trouble covering the
cost in hard currency.

HAMMER BLOW
The ultimate hammer blow to Iran’s economy could come in the next
few months if it becomes unable to sell the 2.6 million barrels of oil a
day that it is accustomed to exporting, or is forced to offer such
steep discounts that its revenue shrivels.

While Iran has a more diverse economy than other big oil
exporters in the Gulf, energy exports are still its main source of
earnings to buy food and other necessities.

Top oil exporter Saudi Arabia – long a regional rival of Iran –
has promised to make up for lost supply for countries that stop buying
Iranian crude.

South Korea’s Lee became on Tuesday the latest Asian leader to
visit Saudi Arabia in search of additional oil supplies to replace
possible cuts of oil from Iran. The leaders of Japan and China visited
in recent weeks.
“I believe Saudi can play a major role in stabilizing the global
economy,” Lee said in a speech. Korea bought 87 percent of its oil from
the Middle East last year, including 9 percent from Iran.

Where Iran is still able to sell oil, it has difficulty getting
paid, or exchanging payment from the buyer’s domestic currency into
dollars so that it can use the money for international trade.

South Korea owes Iran’s central bank about $5 billion for crude
oil imports, but the money is trapped in the Korean banking system
because of U.S. sanctions.

The European Union, which bought about a fifth of Iran’s oil
exports last year, has announced a total embargo which will take force
over the next six months.

China, which also bought about a fifth of Iran’s oil last year,
is demanding steep discounts to keep doing business with Tehran, and has
cut its imports by more than half over the first three months of this
year while pressing Iran to cut its price.

A senior executive of a U.S. oil company said Saudi exports have
risen by 200,000 barrels a day, mostly to Asia, making up for most of
the decline in China’s imports of Iranian oil. China has also been
increasing its purchases from Russia and West Africa, oil traders say.

Energy is not the only Iranian export that has been hurt. Traders
said that China is likely to cut its purchases of Iranian iron ore as
well, worth $2 billion a year.

“There is a huge risk ahead, and many haven’t realized it yet,”
said a senior executive at a Shanghai-based trading firm that has a
long-term partnership with an Iranian ore supplier.

“It is easy for the United States to freeze our business, forcing
large Chinese Iran ore traders, which have large trading volumes with
Iran, to be more cautious when making bookings. It’s not worth taking
the risk.”
A Chinese iron ore buyer based in eastern China’s Shandong
province said some of his Iranian suppliers had rushed shipments, a sign
that they too were worried about potential payment problems. Shipments
booked in February had arrived early, and he expected imports to decline
by March.

The new U.S. sanctions, which come into effect gradually by June,
would make it impossible for countries to use the international
financial system to pay for Iranian oil. Washington has said it will
provide waivers to countries to prevent chaos on oil markets, but wants
them to demonstrate that they are cutting imports in order to receive
the permits.

The sanctions have been imposed to halt Iran’s nuclear program,
which the West believes is being used to develop a nuclear bomb. Iran’s
leadership says the nuclear program is peaceful, and it is willing to
endure sanctions to maintain it as a national right.

Last month, Iran took the important step of beginning production
of highly enriched uranium at a new facility hidden deep under a
mountain, where it would be difficult for U.S. or Israeli warplanes to
destroy it.
Israel and Western countries have accused Iran of working to develop a nuclear bomb, a charge dismissed by Tehran.

Talks between Iran and the West over the nuclear program broke
down a year ago. Iran has repeatedly said it wants to restart the talks,
but has refused Western demands to make clear first that its uranium
enrichment would be up for negotiation.

As the sanctions have tightened, Iranian officials have made
repeated threats of military strikes against Mid-East shipping and the
United States, which protects the Mid-East oil trade with a giant
flotilla based in the Gulf.

SCLC TODAY

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